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ICFE eNEWS #17-06 - January 9th 2017

Ask Mr G's "Rent-to-Own: A Good Idea?"

By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors

Is it a good idea to buy stuff at a rent-to-own store?

"Name brand items, no money down, small payments, bad credit no problem, same-day delivery, no long-term commitment, no hidden fees."

The above is an advertisement for a "Rent-To-Own" (RTO) store. Sounds like the place to go, does it not? What could possibly be wrong with taking them up on their offer? I wouldn't say it would be wrong to buy stuff from a rent-to-own store, but on the other hand, I wouldn't say it would be wise either.

The RTO industry began around 1980 when the Association of Progressive Rental Organizations (APRO) started with 40 member companies. Today 350 member companies represent over 10,000 stores and serve almost 5 million customers at any given time of the year.

So, how does the RTO process work? These stores operate in a manner synonymous with their name, "rent-to-own." The customer chooses from among hundreds of name brand items ranging from appliances, furniture, electronics, computers, smart phones, etc. During the contract period, he makes payments and is regarded as a "renter" of the product, but when the payments are all made, he becomes the "owner" of the product. The normal payment period is usually no more than 19 months.

Because this process is technically referred to as a "lease contract," it is not subject to as many rules and regulations as is a "rental contract." But the RTO has more options than a traditional lease agreement. For instance, one can return the product early, and if undamaged, the contract is terminated. If the product is returned with damage, additional fees will be charged. Also, while making payments, products that break will be repaired or replaced by the store (sometimes also for additional fees). Late or missed payments can result in repossession of the product, with forfeiture of all the previous payments.

Furthermore, bad credit is not a consideration, plus the payments in an RTO are usually smaller than those of traditional loans or leases. Bottom line is that a RTO enables people to have name brand items like "the Jones's" do, and have them "right now" without waiting.

Convenience is the number one attractive feature, followed closely by smaller payments. Thus, this industry is especially appealing and alluring to lower income families and to those with bad credit.

Is there a downside to all these great features of the RTO? Yes, there are two major downsides: (1) the rate of interest, and (2) the overall price of the products.

Rate of Interest. "Interest rates of 100% and higher are often in effect when choosing the rent-to-own option. Legally speaking, there is nothing wrong with this, as the rent-to-own option is technically not a loan, but a "lease" (Money Crashers).

Overall Price. Here's the deal-breaker! You grossly overpay for the products! In fact, you can pay 3 to 4 times more for items at a rent-to-own than you would at a store like Home Depot. Here are three examples of the "hot Deals" currently advertised on a national rent-to-own website in comparison to the very same item purchased at Home Depot.

VIZIO 50" 4K UHD Smart LED TV D50U-D1
Payments $116.97 Monthly (19 months)
RTO Total Price $2,456.09
Home Depot Price $512.16

Frigidaire Silver Mist 18. Cu. Ft. Top-Mount Refrigerator
Payments $95.30 Monthly (19 months)
RTO Total Price $1,715.22
Home Depot Price $566.10

Amana 3.5 Cu. Ft. Washer
Payments $13.99 Weekly (78 weeks)
RTO Total Price $1091.22
Home Depot Price $299.00

To buy these three items from a rent-to-own store verses Home Depot would cost you $792 more, $1,149 more, and $1,944 more! Now, that is a big time problem; a problem that cannot be overlooked for the sake of convenience.

If a shopper would put the "rent-to-own" payment amount in his own cookie jar each week/month, he could walk into Home Depot and buy the product outright in only 45 months' time. Surely, we could discipline ourselves to do that if it meant saving two to four times the cost of the item.

So, "no," it is not wrong to buy stuff from a rent-to-own store, but it is certainly is not wise to do so. Wise people will delay the immediate gratification of having the item "right now" if, in doing so, they will save a boat-load of money and avoid paying interest.

Ask Mr. G
Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023

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Sent by:

Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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